AGCO’s Richenhagen enjoying growth in Spain, Europe

Spain’s financial system is careening toward a possible default. The banks are asking European governments to speed up negotiations on a bailout, and companies are holding off on spending or borrowing money until they see what happens next.

But to Georgia’s AGCO Corp., Spain, one of Europe’s leading farming countries, is one of its best markets.

AGCO (NYSE: AGCO), which makes farming equipment, is having one of the best quarters in recent memory, said CEO Martin Richenhagen.

“In our industry, we’re seeing almost all markets growing,” he said. “We will have 10 billion people on Earth soon, so that’s why I’m very bullish on farming.”

Regardless of an economy’s financial health, people have to eat, Richenhagen said.

A new factory to build tractors and combines in Germany will increase sales in Europe, he noted. And even when European companies are in dire straits financially, food-growers, even in cash-strapped places like Spain, are seeing high demand.

At AGCO, income from operations for the first quarter of 2012 was $169.8 million, compared with $108.7 million in the first quarter of 2011.

“The increase in income from operations during the first quarter of 2012 was a result of an increase in net sales as well as improved gross margins resulting primarily from higher production volumes in Europe and North America and a favorable product mix,” the company said in its first-quarter earnings report.

The company reported first-quarter net income of $121.2 million, up from $81.6 million a year earlier.

“Income from operations increased in our Europe/Africa/Middle East region in the first quarter of 2012 compared to the first quarter of 2011 primarily due to higher sales and production volumes as well as improved cost controls and a better product mix,” the company said.

When things are going badly financially, growers have to become more efficient by buying high-tech equipment, or the government steps in to finance food production. Either way, AGCO’s products are purchased, Richenhagen said.

That sales increase is the opposite of what most other companies are seeing in Europe these days.

Atlanta-based investment firms, such as Morgan Stanley Smith Barney’s Atlanta offices, are pulling out of Europe in favor of emerging markets and other asset classes.

The region’s nations are struggling with how to manage the debt loads of some of its members.

European finance ministers agreed July 9 to send 30 billion euros, or $37 billion, to Spain’s banks “to be mobilized as a contingency in case of urgent needs in the Spanish banking sector,” said Jean-Claude Juncker, president of the Eurogroup of finance ministers, in a statement.

European investors are holding onto cash, and businesses are holding off on making big purchases as they watch to see whether the eurozone will hold together through its debt crisis.

Morgan Stanley Smith Barney’s investment board predicts there’s a 35 percent chance at least one country will be forced out of the euro.

The firm’s investment committee is steering money more toward Brazil and other emerging markets instead.

But Spain is one of farming’s best markets, AGCO’s Richenhagen said.

Spain has one of the Europe’s largest amounts of arable land. It has always traditionally led the region in citrus fruits, cereal grains, vegetables, olive oil and wine production, but changing diets of the Spanish and European people have also boosted livestock, poultry and dairy.

Spain has led the world in production of oranges and mandarins, and has become a leading importer of soybeans to feed its livestock.

“The farm sector does not suffer from the various problems you can face in other areas,” Richenhagen said. “The discussion around the euro doesn’t affect operational companies.”

AGCO is expecting to bring in $10.5 billion in sales and $5.50 a share for investors in the second quarter of this year, Richenhagen said. The company is set to report earnings July 26.

“We don’t have any issues in Europe at all,” he said.

Part of the Duluth-based AGCO’s boon is that, no matter what happens in the financial world, people have to eat.

And diets around the world are changing, Richenhagen said. People are starting to eat more meat, and that increases the need for crops to feed the animals, he said.

It takes five or six times more corn and soybeans to feed livestock than just the vegetables we eat, Richenhagen said. And, that extra farming and ranching necessitates more fuel, much of which is now made from grown bioproducts, including corn.

Farming was considered a cyclical industry in the past, because production was limited by weather and the fertility of the soil.

Technology has changed all that, making it so crops can be grown and sold worldwide, all year round.

AGCO makes some of that technology.

“Nobody talks about cycles in our industry anymore. We haven’t seen a cycle in 15 years,” Richenhagen said.

There are several factors supporting growth in farming, none of which are enjoyed by other industries, he noted.

The availability of land is dropping, which means farming is becoming more professional and organized. Professional farmers need equipment like that sold by AGCO.

Meanwhile, commodity prices for goods like corn are still high. Corn prices rose 35 percent in recent weeks, to $7.86 a bushel. Soybeans reached an all-time high this month at $16.79 a bushel.

And populations worldwide continue to grow.

It’s all good news for AGCO, Richenhagen said. “The demand is much greater than the supply,” he said.

Part of the mania about Europe is caused by politicians here, he said.

Richenhagen is a native of Germany.

He became a U.S. citizen last August, which means this year’s election will be his first.

He doesn’t sound as bullish on President Barack Obama as he does on the farming industry.

Richenhagen says he will vote for whichever candidate is pro-business, and someone positioned to fix America’s problems.

Among Richenhagen’s chief concerns are the U.S. government’s budget, which, he says, has made it impossible for the country to run properly, and the rules surrounding the repatriation of foreign earnings.

Companies like AGCO must pay extra taxes to bring money earned abroad back into the U.S. To avoid these taxes, the companies keep their foreign earnings outside the country, which means it’s not reinvested into jobs here, Richenhagen said.

Despite the fuss around Europe, those countries may be making better decisions than the U.S., he said.